What is a Credit Builder Loan?

A credit builder loan is a type of credit product designed to help you establish or improve your credit history. The lender reports your payment activity to the credit bureaus.

Making payments on time can add positive information to your credit report. Missed payments can have the opposite effect.

KOHO Credit Builder

KOHO Credit Builder is designed to help Canadians establish or build their credit history through consistent monthly payments, without relying on a traditional credit card.

With KOHO Credit Builder, you can:

• +74 points average credit score increase seen using our credit building tools*

• Get approved without a hard credit check or minimum deposit

• Pay no interest on the line of credit

• Track your credit score and credit report directly in the KOHO app

• Build your credit history with monthly payments reported to the credit bureaus

How Does a Credit Builder Loan Work?

Credit builder products work differently from many traditional loans.

Their main purpose is to create a record of payments that can be reported to a credit bureau. The exact structure depends on the provider.

You make regular payments according to the agreement. Those payments may then appear on your credit report. A history of on-time payments can help demonstrate that you manage credit responsibly.

Does a Credit Builder Loan Build Credit?

It can.

Payment history is one of the most important parts of your credit score. Consistently making required payments on time can help establish a positive credit history.

There is no guarantee that a credit builder loan will increase your score by a specific number of points. Credit scores are based on several pieces of information in your credit report.

Who Might Consider a Credit Builder Loan?

A credit builder loan or similar credit-building product may be useful if you:

• Have little or no credit history

• Are new to Canada

• Have difficulty qualifying for traditional credit

• Want to establish a consistent payment history

The goal is not simply to borrow more money. The goal is to create positive credit history over time.

Credit Builder Loan vs. Regular Loan

A regular personal loan is usually designed to give you money for a purchase or expense. Most lenders also review your credit when you apply.

A credit builder product is primarily designed to help establish credit history.

That distinction matters. If you need money immediately for an expense, a credit builder loan may not be the right type of product.

What Should You Look for in a Credit Builder Loan?

Before signing up, check:

• Whether payments are reported to a credit bureau

• Interest charges

• Monthly fees

• Payment amounts

• Repayment terms

• Credit check requirements

• What happens if you miss a payment

Reporting is especially important. A credit product cannot help establish payment history on your credit report if that activity is not reported.

Is a Credit Builder Loan Worth It?

A credit builder loan can be useful if you need to establish credit and can comfortably make the required payments.

The most important part is consistency. Make every payment on time and avoid taking on payments you cannot afford. Positive payment history can support your credit profile over time.